NATIXIS_REGISTRATION_DOCUMENT_2017

FINANCIAL DATA Consolidated financial statements and notes

Consolidation of insurance companies 2.8 The following rules are applied to consolidate the financial statementsof insurancesubsidiaries: incomeand expensesare classifiedby type in accordancewith a bankingaccountingprinciplesand not as a functionof expense; balance sheet items are included under the correspondingline a items of the financial statements presented in the banking format. Insurance company investments are classified in the balance sheet under the various categories of investments defined in IAS 39. Policies managed by the insurance subsidiaries of the Coface, Compagnie Européenne de Garanties et Cautions (CEGC) and Natixis Assurancessub-groupsmeet the definitionsof insurance policies and investment contracts with a discretionary participationfeature set out in IFRS 4. Accordingly,they result in the recognitionof technicalreserves in liabilities.These reserves are measured in accordance with French GAAP pending publicationof an IFRS standarddealingwith technicalliabilitiesof insurancecompanies. Technicalreservesfor insurancepoliciesmeet the commitments of insurancecompanieswith regard to policyholdersand contract beneficiaries. In accordance with IFRS 4, insurance technical reserves are calculated using methods stipulated by local regulations. A liability adequacy test is carried out in order to ensure that the insurance liabilities as presented in the consolidated financial statementsare sufficientto cover future cash flows estimatedat that date. The test is based on a stochastic or deterministic valuationmodelof discountedfuturecash flows. Technical reserves for life-insurance policies are primarily composed of mathematical reserves corresponding to the surrendervalue of the contract. Insurance offered primarily covers death, disability, work disability, dependency, damage to persons or property, health, legal protectionand financial loss. Related technicalreserves are calculated using specialized tables (life, experience and Bureau Commundes AssurancesCollectives/BCACtables). Technical reserves for non-life insurance policies include reservesfor unearnedpremiumincomeand for claims to be paid (not discounted). Reserves for unearned premium income are prorated separately for each insurance policy. They correspond to the portion of premium income remainingbetween the fiscal year-end and the premiumdue date. Claims reserves include an estimate of claims reported but not settled at the reportingdate. In addition to the amount of claims

payable, a provision is set aside for unknown claims, calculated on a statisticalbasis by referenceto the final amountof claims to be paid followingsettlementof risks and after any debt recovery measures. Reserves also include economic hazards related to end-of-year premiumsas well as a reservefor managementfees. In addition to this statistical estimation, specific reserves are recognizedfor major disastersbased on the probabilityof default and of severity,estimatedon a case-by-casebasis. Policy acquisitioncosts are expensedto the period. In particular, acquisition costs for non-life insurance policies are expensed over the acquisition period of the premiums: the portion of deferred acquisitioncosts is calculated pro rata to the unearned premiumsat the end of the year. Pursuant to paragraph 30 of IFRS 4, insurance policies and investment contracts with discretionary participation (life insurance) are measured using shadow accounting, which consists in recognizing the portion of unrealized gains or losses potentially attributable to policyholders as a deferred profit-sharing reserve. The deferred profit-sharing reserve thus reflects the potential entitlement of policyholders to unrealized gains for financial investments or their portion of unrealized losses. Consideringthe pay-out ratio in the 2017 budget and in accordance with the pay-out ratio recorded for 2016, the deferred profit-sharingrate adopted at December 31,2017 was 89%comparedwith 87%at December 31,2016. In the event of net unearned losses, a deferred profit-sharing asset is recognized up to the amount for which future deferred profit-sharingof policyholdersis estimatedto be highly probable. Deferredprofit-sharingassetsand liabilitiesarisemainlyon: the revaluation of “available-for-sale financial assets” and a “financialassetsat fair value throughprofit or loss”; the revaluation of real estate assets held to cover insurance a policies; the restatementin the consolidatedfinancialstatementsof the a capitalreserveand the liquidityrisk reserve. The change in the deferred profit-sharing asset and liability is recognized: in equity when it relates to changes in the value of a “available-for-saleassets”; in incomewhen it relates to changesin the value of assets “at a fair value throughprofit or loss” or investmentpropertyheld to cover insurance policies, as well as changes in provisions for prolongeddeclinesin value in “available-for-saleassets”. Applicationof the shadowaccountingmechanismresulted in the recognition of a deferred profit-sharing liability on December 31,2017 as on December 31,2016.

5

2017

2016

(in millions of euros)

Total net deferred profit-sharing asset Total net deferred profit-sharing liability

-

-

3,275

3,108

215

Natixis Registration Document 2017